Brandeis and Rose: The Numbers Emerge

Many thanks to Paddy Johnson for tipping me off to an astonishing article by Judith Dobrzynski at the Daily Beast, who’s managed to get the COO of Brandeis University, Peter French, to go on the record about his decision to close down and sell off the contents of the Rose Art Museum.

There was precious little sympathy for Brandeis before this piece came out, but I imagine that there will be even less now. French and Dobrzynski are talking about Brandeis’s "financial collapse", but here are the numbers: the Brandeis endowment was $712 million in June, and is $530 million now. On top of that, there’s an ongoing capital campaign that has raised $820 million of its $1.2 billion goal; much of that money will be used to construct new university buildings. And the university’s projected deficit for the next six years is just $79 million — less than half the losses that the endowment suffered in just six months.

French honestly seems to be asking us to believe that faced with a deficit of $13 million a year, he can neither simply spend that money out of the $530 million endowment, nor use any of the money from the capital campaign, but rather has no choice but to sell off a magnificent collection of artworks last valued at $350 million:

By Massachusetts law, French said, Brandeis can only spend gains, not capital, from the endowment–and it will be some time before there are any of those. Brandeis’s reserve fund, which is included in the endowment for management purposes, is projected to run out in about 18 months.

Borrowing money was out of the question, French explained; Brandeis already has $256 million in debt, and as he put it, “If we take out more debt, what would service it?”

Fine, don’t borrow the money. Just spend what you’ve got. The whole point of having an endowment is that when you run into bad times, there’s money there to tide you through. Turning around and saying that you’re not allowed to actually spend the money largely defeats one of the key reasons for having the endowment in the first place.

As for Massachusetts law, it’s complicated. Yes, there are laws against spending sums of money once the endowment falls below the original amounts donated. But then again, there are also laws against selling off artworks donated to the museum, especially if they were restricted gifts. And whatever Brandeis does, it will have to be signed off on by the Massachusetts attorney general.

I talked this morning to Jack Siegel, an expert on such matters who runs Charity Governance Consulting in Chicago. He blogged the scandal on Wednesday, and told me about the legal doctrine of cy pres, whereby state attorneys general can bend the laws binding endowments in order to prevent the entire institution from failing.

Now endowments are complicated things, made up of thousands of separate and earmarked bequests; they’re not big monoliths which can easily and simply be spent down in the event of a fiscal crunch. But on the other hand, paintings are just as much bequests as cash endowments are, and are subject to very similar restrictions.

The problems at Brandeis are purely financial, and have nothing to do with the Rose Art Museum, which, at the margin, actually subsidizes the university. The solutions should be financial too, and not involve shutting down an excellent museum which is not losing any money at all.

So what does Brandeis think it’s doing? Richard Lacayo says that there’s a good chance this entire decision was made largely to get around silly deaccessioning laws. The idea seems to be that an active museum can’t sell off artworks, but that if the museum has been closed down, then deaccessioning rules no longer apply, and Brandeis can get to work tactically selling off bits and pieces of its collection as and when it needs the cash.

Donn Zaretsky is thinking along similar lines. He speculates, in an email to me:

They want to sell a few paintings without getting hassled by the museum groups. I think, at the end of the day, we’re going to end up with a research and study center plus art gallery that looks remarkably like the Rose Art Museum, except it’s not subject to the museum ethics rules.

I think Donn is being overly optimistic here. The museum’s being closed, the art is going to be quietly put up for sale, and the university is going to sell off major works piecemeal as and when it needs some cash. I suspect it had been counting on getting a substantial bequest from Carl Shapiro when he died, and now that Shapiro’s money has been evaporated by Bernie Madoff, Brandeis has decided that the Rose’s collection will replace it as a source of future cashflow. It’s shameful.